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14/05/2001 - Common environmental objectives in most OECD countries include clean air, clean water, reductions in toxic emissions and household waste and the conservation of natural resources. From prohibitions and technical standards to tradable permits, taxes and voluntary restraint agreements, a variety of ways to pursue these aims is available. But choosing between them is not always easy, and governments often fail to make effective use of the policy options available.

How can governments reconcile policies for agriculture, fisheries, energy, transportation and other sectors with environmental objectives? How should governments set fuel taxes? When are green taxes preferable to a system of tradable pollution permits? Why are "voluntary agreements" frequently an unsatisfactory substitute for legislative action? Such questions are at the heart of an article in the OECD's Economic Outlook no. 69 based on the analysis of actual experience in a number of OECD countries.

Common themes emerge. In most countries, there is ample scope for achieving environmental objectives at lower economic costs or obtaining better environmental outcomes with the same economic resources. Many countries still make insufficient use of "economic" or market-based instruments for environmental aims.

Concerns about competitiveness and income distribution are often allowed without due cause to impair the use of economic instruments for environmental purposes. Specific economic sectors still get inappropriately favourable treatment and there is often insufficient co-ordination between sector-based policies and environmental policies. Many governments fail to apply adequate cost-benefit analysis in setting their priorities for projects and policies.

The article results from work undertaken in the context of an OECD initiative on Sustainable Development which will be discussed at a joint meeting of OECD Environment Ministers and Ministers of Finance and Economy on 17 May, following on from a meeting of OECD Environment Ministers on 16 May.